SummaryAn assignment was given to a choice of a multinational or SME in any industry of a home country and its core business was examined. Issues regarding foreign direct investment and the impact of international diversification on the cost of capital for the firm also need to be discussed. So, the chosen company is Volkswagen and the host country is China. The Volkswagen company is well known for its range of automobiles and the most famous brand associated with the company is Audi.IntroductionWith an average growth of 2% per year, the automobile industry has been one of the growing industries the fastest in the world. The industry has continued to evolve and become one of the most competitive markets and has radically globalized due to its growth. But today, only a few major players dominate the global market, as mergers and unions regularly occur among them. Previously, the automobile industry was dominated by the European and American automobile industry, but recently it has faced strong competition from emerging automobile manufacturers from Latin America and East Asia in the global market . China is now one of the leading automobile manufacturing countries and has a history of only 50 years, since 1953. After the country changed its foreign direct investment policy in 1981, a large number of Local companies have started to emerge and even foreign automakers are trying to do business in China. With this significant growth, it has become one of the largest automobile markets in the world and has become a more mature industry in a very short period of time. The Chinese government has developed a number of new policies aimed at providing a significant boost to the automotive sector. local automakers and to attract more foreigners...... middle of paper ...... attractive market to venture into since it changed its policy to encourage more multinationals to enter its market. With the right international strategy implemented by Volkswagen and the objective of achieving the status of leader in the automobile market, China could prove beneficial and act as a boost for Volkswagen in obtaining these statuses. With proper research into Chinese political and economic factors and finding the right partner to establish a joint venture with, Volkswagen could achieve huge success not only in the Chinese market but also gaining a competitive advantage. Although the acquisition still proved to be successful for Volkswagen, but the creation of a joint venture proves to be a better way to consider the new market and the political regulations set by the Chinese government. In addition to this, it is the easiest and fastest way to enter the market..